Is financial independence for the IMF a good thing?

Ngaire Woods, a veteran IMF watcher, came and briefed us on the Fund and IMF logothe crisis, based on her recent paper for the European Parliament. Here are some highlights:

There is a gulf between public perceptions that the IMF is helping the poorest countries, and the reality, that it’s main role has been sorting out the financial disaster in Eastern Europe. Since the onset of the crisis, of the IMF’s 18 new lending arrangements 82% of resources have gone to Eastern Europe, only 1.6% to sub-Saharan Africa. The IMF itself says it can only cover 2% of the external financing needs of low-income countries.

A major institutional change has taken place in the way the Fund finances its work. In the old days, staff salaries were paid out of the interest on its loans, so if countries stopped borrowing, the IMF got into financial difficulties (precisely what was happening just before the crisis – the institution was predicting an estimated shortfall of $400 million a year by 2010 and had to lay off 300-400 of its staff (the total of which was 2600). But that has all changed and the Fund:

a) can now issue its own bonds (China intends to invest up to US$50 billion in them, Brazil and Russia have also committed to invest $10 billion each).

b) has set up an endowment created with the profits from the limited sale of 403.3 metric tons of the Fund’s gold holdings.

c) has reintroduced cost recovery on its concessional lending to low-income countries

d) has received massive new credit lines, largely from the old G7 countries – this is the bulk of the much trumpeted increase in the so-called ‘New Arrangements to Borrow‘ from $50 billion to $500 billion agreed at the London Summit.. These arrangements are in essence agreements from member countries who to stand ready to lend to the IMF. Separately, Japan has already contributed a $100 billion credit line (through a bilateral borrowing agreement) to bolster IMF resources. In a similar vein, Norway $4.5 billion, Canada $10 billion, and the EU has pledged $100 billion.

IMF protestThis increases predictability, but perversely means the IMF is now less accountable/responsive to developing countries – its staff’s jobs no longer rely on convincing them to take its loans. In fact there is even some suspicion that one of the motives for G7 countries to pump money into the fund is precisely to prevent voting reform that would reduce their clout. Ngaire called this ‘the last gasp of the G7 trying to manage the world by clinging to the IMF.’

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Comments

6 Responses to “Is financial independence for the IMF a good thing?”
  1. Scott

    Might it be a good thing that the IMF staff positions are no longer reliant on forcing loans on developing countries? I thought much of the criticism of the IMF was just that it did force such loans on poor countries, under less than equitable conditions, in part because it did need the revenue from those very countries.

  2. Estenieau jean

    I have no trust on the IMF since they imposed the structural adjustment on the third world countries. I always believe that the IMF and its sister organization (World Bank) were created to advance the capitalism system and the situation of the third world countries more complicated that it has been.Integration and regionalization may change the order and structure of the way things used to be done. It remains to be seen if the power of the European union could change the philosophy of the IMF.

  3. James Eliscar

    From the perspective of those understanding the plight of Third World or developing countries under IMF loans and its conditionalities which affect critical sectors of these countries such as education and healthcare, a financial independent IMF will take away the burden carrying these loads of heavy interests on loans that should be repaid to IMF while neglecting core sectors and providing privileges to foreign companies and going to such length as privatization of state-run sectors. However, given the conditions that now an independent IMF will leave these countries upon which the funding to pay its staff used to be depended on, the question that we should ask is: will IMF have any responsibility to provide assistance to these developing countries? Another question that is needed to raise is: after so many years that IMF supported part of its operations on excessive interests accumulated in this countries, will they provide development ”grants” instead of loans to these countries as compensations? Because by repaying these excessive interests to IMF, existing structures in these countries are delapidated in some and others non-existent.

  4. Saeed Aden

    IMF’s immoral business practices have really caused a lot of pain in many countries in the 3rd world.They impovrished countries that initially relied on IMF and World Bank for assistance and put in unbelievable level of debt. Yes, James, you are right, I think they should be held responsible for the human suffering they caused in many parts of the world. IMF should compensate those countries and forgive the loans too.

  5. Zo

    Mr. Green states that “the IMF is now less accountable/responsive to developing countries” because its staff’s salaries are no longer directly tied to lending. This implies that the IMF was accountable to developing countries before the switch. The IMF is accountable to rich countries; they have the most votes via a governing system that links a country’s economy size (and quota) to voting power.

    The question is: how can the IMF become more accountable/responsive to developing countries? Someone needs to figure this out pretty fast considering just 1.6% of recent lending went to Africa. Accountability aside, the IMF’s responsiveness to developing countries is quickly approaching zero.

  6. Christopher Smith

    The fact that the G7 countries have scrounged hundreds of billions to further secure the IMF’s lack of accountability to the developing world is no surprise to me. The IMF has done a fantastic job of reversing the global South’s national development projects. While at the same time the IMF has broken down the developing world’s ability to control their own national economies through structural adjustment programs that ties IMF funds to national liberalization policies. The question for the future of the developing world is how do you begin to oppose the IMF’s policies and not completely bankrupt your country? How much individual state sovereignty can be eroded by IMF imposed liberalization policies before the state hardly exists anymore?

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